Battle to shift from fossil fuels to metals

According to a Reuters report, the global trade war will shift from fossil fuels to metals and raw materials. Russia’s invasion of Ukraine highlighted the risk of relying on autocratic states for energy. Even if Europe’s gas crisis eases, Western manufacturers’ focus will switch to reducing China’s dominance in materials key to a cleaner economy.

Europe needs to cumulatively spend US$5.3 trillion on clean energy projects by 2050. That requires a six-fold increase in the global production of copper, lithium, graphite, nickel and some rare earths by 2040 show International Energy Agency (IEA) estimates.

Yet China dominates the processing, and to a lesser extent the extraction, of many critical industrial ingredients. It refines 58% of lithium produced globally, 65% of cobalt and over one-third of nickel and copper.

Ostracised Russia is also big in nickel, palladium and cobalt.

Europe, which imports between 75% and 100% of most metals, looks particularly vulnerable.

In response, Western companies can strike deals with suppliers in friendly countries, open mines at home, or boost recycling.

The first approach is the fastest and is underway. In 2022 carmakers have ramped up partnerships with mines and invested directly in mining projects, data from Fitch Solutions shows.

General Motors took a stake in Australia’s Queensland Pacific Metals to secure nickel and cobalt for green SUVs.

Opening new mines at home looks safer but takes longer. Take lithium. Europe doesn’t currently mine an ounce of the key electric-vehicle battery component. And the United States only supplies 2% of global demand. But things are changing.

Sibanye Stillwater is aiming to operate Europe’s first lithium mine in Finland in 2025; France’s Imerys is seeking to extract 34,000 tons of lithium hydroxide annually from a mine opening in 2028. If all European lithium mining projects transpire, they could supply around 40% of its expected demand of 600,000 tons of lithium carbonate equivalent a year by 2030, says one European miner.

The United States, which only holds 3% of the world’s lithium reserves, has passed legislation to subsidize domestic extraction of crucial materials.

Neither approach is foolproof. Mining in developed markets may mean pushback from environmentally conscious citizens. Critical metals producers could also make life trickier for buyers by forming cartels.

That’s why Western nations’ best option is ultimately to recycle metals from used appliances. Companies like Umicore and Redwood Materials already own the technology to reuse batteries and smartphones.

Europe recycles 17% of the globe’s battery production. But this share will rise to 48% by 2025, Fitch Solutions suggests.

Unfortunately, recycling is costly. But in a polarized world, protecting Western industries and jobs will merit a premium.

 

Mexico urges US and Canada firms to participate in lithium market

Mexican President Andres Manuel Lopez Obrador said his administration will issue a call for US and Canadian companies to participate in the country's incipient lithium market.

Though Mexico does not currently produce lithium, the finance ministry estimated the value of Sonora lithium reserves at US$600 billion.

Mexico does not yet have commercial lithium production; though close to a dozen foreign companies hold contracts to explore potential deposits.

"In all cases there must be associations of the public company with private entities and we do not want lithium to be taken out of Sonora," he said at a regular news conference, referring to government plans to exploit the mineral in the northern Mexican state.

The role of foreign companies will be centered in building infrastructure and state entities will hold the majority stakes in the projects, he added.

Lithium will be used for purposes such as the production of electric car batteries, but only factories installed in Sonora will be able to take advantage of the mineral, Lopez Obrador noted.

The president has urged the private sector to work with the new state miner, saying the size of the investment needed means the government needs partners.

Nonetheless, analysts argue that companies are more likely to focus near-term investments in Chile or Argentina's sprawling salt flats, where industries are more established and policies more market-friendly.

Lopez Obrador nationalized Mexico's lithium deposits in April, hoping to cash in on surging demand for the metal.